**UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**


**FORM
      10-QSB**


(Mark
      One)


þ
            
            **QUARTERLY
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934**


**For
      the quarterly period ended March 31, 2007**


o
            
            **TRANSITION
                REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
                ACT**


**For
      the Transition Period from** **** **to** **** ****





**Commission
      file number 000-32925**





**AVATAR
      SYSTEMS, INC.**


(Exact
      name of small business issuer as specified in its charter)


Texas
              (State
                or other jurisdiction of
              incorporation
                or organization)
            
            75-2796037
              (I.R.S.
                Employer
              Identification
                No.)


2801
      Network Boulevard, Suite 210


Frisco,
      Texas 75034


(Address
      of principal executive offices)


972-720-1800


(Issuer’s
      telephone number)


N/A


(Former
      name, former address and former fiscal year, if changed since last
      report)


Check
      whether the issuer: (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 12 months (or for such shorter period
      that the registrant was required to file such reports), and (2) has been subject
      to such filing requirements for the past 90 days. Yes þ No o





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act): Yes o No þ





State
      the
      number of shares outstanding of each of the issuer’s classes of common equity,
      as of the latest practicable date: Common Stock, $.001 par value, 9,038,152
      shares outstanding as of May 18, 2007.





Transitional
      Small Business Disclosure Format (check one): Yes o No þ









**PART
                    I. FINANCIAL INFORMATION**
                1Item
                    1. Financial Statements
                1Item
                    2. Management’s Discussion and Analysis or Plan of
                    Operation
                11Item
                    3. Controls and Procedures
                17**PART
                    II. OTHER INFORMATION**
                17Item
                    1. Legal Proceedings
                17Item
                    2. Unregistered Sales of Equity Securities and Use of
                    Proceeds
                17Item
                    3. Defaults Upon Senior Securities
                17Item
                    4. Submission of Matters to a Vote of Security Holders
                17Item
                    5. Other Information
                17Item
                    6. Exhibits
                17Signatures
                18












**PART
      I. FINANCIAL INFORMATION**





**Item
      1. Financial Statements**




Avatar
                    Systems, Inc.BALANCE SHEETSMarch
                  31,
              
              December
                  31,2007
              
              2006(unaudited)
              
              (audited)**ASSETS****CURRENT
                  ASSETS**Cash
                  and cash equivalents
              
              $
              282,249
              
              $
              322,047Marketable
                  securities
              
              
              371,670
              
              
              395,115Accounts
                  receivable
              
              
              233,449
              
              
              351,570Prepaid
                  expenses and other current assets
              
              
              29,317
              
              
              31,499Deferred
                  income taxes
              
              
              18,676
              
              
              16,853**Total
                  current assets**
              
              
              935,361
              
              
              1,117,084**PROPERTY
                  AND EQUIPMENT**,
                  net of accumulated depreciationof
                  $540,111 and $489,004, respectively
              
              
              421,338
              
              
              456,514**PURCHASED
                  SOFTWARE,**net
                  of accumulated amortizationof
                  $1,065,611 and $989,144, respectively
              
              
              1,937,752
              
              
              2,014,219**SOFTWARE
                  DEVELOPMENT COSTS,**net of accumulated amortizationof
                  $1,892,402 and $1,779,122, respectively
              
              
              2,882,174
              
              
              2,752,417**OTHER
                  ASSETS, net**
              
              
              158,414
              
              
              173,876**Total
                  assets**
              
              $
              6,335,039
              
              $
              6,514,110
 
 
 **LIABILITIES,
                  TEMPORARY EQUITY AND****PERMANENT
                  STOCKHOLDERS' EQUITY****CURRENT
                  LIABILITIES**Accounts
                  payable
              
              $
              207,926
              
              $
              273,504Accrued
                  expenses
              
              
              130,918
              
              
              161,678Line-of-credit
              
              
              145,067
              
              
              145,067Current
                  maturities of capital lease obligations
              
              
              23,910
              
              
              32,335Current
                  maturities of long-term debt
              
              
              95,300
              
              
              88,165Current
                  maturities of notes payable-stockholders
              
              
              102,513
              
              
              71,608Deferred
                  revenue
              
              
              347,480
              
              
              361,604**Total
                  current liabilities**
              
              
              1,053,114
              
              
              1,133,961**DEFERRED
                  INCOME TAXES**
              
              
              586,639
              
              
              587,684**OTHER
                  LONG-TERM LIABILITIES**
              
              
              90,719
              
              
              93,361**LONG-TERM
                  DEBT**Long-term
                  capital lease obligations
              
              
              29,331
              
              
              34,549Long-term
                  debt
              
              
              365,317
              
              
              412,244Note
                  payable-stockholders
              
              
              526,816
              
              
              567,403Convertible
                  notes payable-stockholders
              
              
              280,000
              
              
              280,000**Total
                  long-term debt**
              
              
              1,201,464
              
              
              1,294,196**Total
                  liabilities**
              
              
              2,931,936
              
              
              3,109,202**COMMITMENTS
                  AND CONTINGENCIES**
              
              
              -
              
              
              -**TEMPORARY
                  EQUITY**Common
                  stock, subject to put rights, 200,000 shares issued and
                  outstanding
              
              
              101,000
              
              
              101,000**PERMANENT
                  STOCKHOLDERS' EQUITY******Preferred
                  stock, $0.001 par value, 10,000,000 shares authorized; none
                  issued
              
              
              -
              
              
              -Common
                  stock, $0.001 par value; 30,000,000 shares authorized;8,838,152
                  shares issued and outstanding
              
              
              8,838
              
              
              8,838Paid-in
                  capital
              
              
              2,158,505
              
              
              2,154,741Retained
                  earnings
              
              
              1,124,092
              
              
              1,130,006Accumulated
                  other comprehensive income
              
              
              10,668
              
              
              10,323**Total
                  stockholders' equity**
              
              
              3,302,103
              
              
              3,303,908**Total
                  liabilities, temporary equity and permanent stockholders'
                  equity**
              
              $
              6,335,039
              
              $
              6,514,110See
                  accompanying notes to financial statements.


Avatar
                  Systems, Inc.**STATEMENTS
                  OF OPERATIONS**
  Three
                  months ended
                March
                  31,2007
              
              
              2006**Revenue:**Software
              
              $
              143,751
              
              $
              76,700Maintenance
              
              
              626,294
              
              
              333,388Professional
                  services
              
              
              176,891
              
              
              62,231Hardware
              
              
              19,312
              
              
              23,270**Total
                  revenue**
              
              
              966,248
              
              
              495,589**Cost
                  of revenue:**Software
              
              
              60,050
              
              
              38,504Maintenance
              
              
              117,599
              
              
              59,665Professional
                  services
              
              
              55,926
              
              
              18,668Hardware
              
              
              16,928
              
              
              13,973**Total
                  cost of revenue**
              
              
              250,503
              
              
              130,810**Gross
                  profit**
              
              
              715,745
              
              
              364,779**Operating
                  expenses:**Sales
                  and marketing
              
              
              105,910
              
              
              75,689General
                  and administrative
              
              
              310,539
              
              
              139,086Amortization
              
              
              189,748
              
              
              98,161Depreciation
              
              
              51,107
              
              
              50,524**Total
                  operating expenses**
              
              
              657,304
              
              
              363,460**Operating
                  income**
              
              
              58,441
              
              
              1,319**Other
                  income (expense):**Investment
                  income
              
              
              4,232
              
              
              5,615Loss
                  on sales of marketable securities
              
              
              (15
              )
              
              -Interest
                  expense
              
              
              (71,618
              )
              
              (2,424
              )**Total
                  other income (expense)**
              
              
              (67,401
              )
              
              3,191**Income
                  (loss) before income taxes**
              
              
              (8,960
              )
              
              4,510Deferred
                  income tax expense (benefit)
              
              
              (3,046
              )
              
              1,533**NET
                  INCOME (LOSS)**
              
              $
              (5,914
              )
              $
              2,977**Other
                  comprehensive income, net of tax**Unrealized
                  gain on marketable securities
              
              
              524
              
              
              8,114Deferred
                  income tax expense
              
              
              178
              
              
              2,759**Other
                  comprehensive income**
              
              
              346
              
              
              5,355**Total
                  comprehensive income (loss)**
              
              $
              (5,568
              )
              $
              8,332**Net
                  income (loss) per share:****Basic
                  and diluted**
              
              $
              -
              
              $
              -**Weighted
                  average common shares outstanding:****Basic**
              
              
              9,038,152
              
              
              8,838,152**Diluted**
              
              
              9,038,152
              
              
              8,838,152See
                  accompanying notes to financial statements.








Avatar
                  Systems, Inc.**STATEMENTS
                  OF CASH FLOWS**
  Three
                  months endedMarch
                  31,2007
              
              
              2006(unaudited
              )
              
              (unaudited
              )**Cash
                  flows from operating activities**Net
                  income (loss)
              
              $
              (5,914
              )
              $
              2,977Adjustments
                  to reconcile net income (loss) to net cashprovided
                  by operating activities:Amortization
                  of software costs
              
              
              189,748
              
              
              98,161Non-cash
                  interest expense
              
              
              33,230
              
              
              -Depreciation
              
              
              51,107
              
              
              50,524Loss
                  on sale of marketable securities
              
              
              15
              
              
              -Stock
                  compensation expense
              
              
              3,764
              
              
              -Deferred
                  income taxes
              
              
              (3,046
              )
              
              1,533Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              118,121
              
              
              (8,019
              )Prepaid
                  expenses and other current assets
              
              
              2,182
              
              
              -Accounts
                  payable
              
              
              (65,579
              )
              
              20,756Accrued
                  expenses
              
              
              (30,760
              )
              
              (48,568
              )Deferred
                  revenue
              
              
              (14,124
              )
              
              12,041Other
                  long-term liabilities
              
              
              (2,642
              )
              
              29,065Net
                  cash provided by operating activities
              
              
              276,102
              
              
              158,470**Cash
                  flows from investing activities**Software
                  development costs capitalized
              
              
              (243,037
              )
              
              (143,699
              )Purchases
                  of property and equipment
              
              
              (15,930
              )
              
              (54,759
              )Purchases
                  of marketable securities
              
              
              (501,048
              )
              
              (2,816
              )Proceeds
                  from sale of marketable securities
              
              
              525,000
              
              
              505Net
                  cash used in investing activities
              
              
              (235,015
              )
              
              (200,769
              )**Cash
                  flows from financing activities**Principal
                  payments on capital lease obligations
              
              
              (13,643
              )
              
              (5,747
              )Principal
                  payments on long-term debt
              
              
              (39,792
              )
              
              (2,040
              )Principal
                  payments on long-term debt-stockholders
              
              
              (27,450
              )
              
              -Net
                  cash used in financing activities
              
              
              (80,885
              )
              
              (7,787
              )Net
                  decrease in cash and cash equivalents
              
              
              (39,798
              )
              
              (50,086
              )Cash
                  and equivalents at beginning of quarter
              
              
              322,047
              
              
              257,056Cash
                  and cash equivalents at end of quarter
              
              $
              282,249
              
              $
              206,970Supplemental
                  disclosure of cash paid for:Interest
              
              $
              37,809
              
              $
              2,424Supplemental
                  disclosure of noncash investing and financing activities:Purchase
                  of equipment under capital lease obligation
              
              $
              -
              
              $
              29,800Change
                  in unrealized gain on marketable securities, net of tax
              
              $
              346
              
              $
              5,355See
                  accompanying notes to financial statements.







**AVATAR
        SYSTEMS, INC.**
 **NOTES
        TO FINANCIAL STATEMENTS**
 **(Unaudited)**




**1.
      Basis of Presentation**


The
      interim unaudited financial statements have been prepared in accordance with
      the
      rules and regulations of the Securities and Exchange Commission (“SEC”)
      applicable to interim financial information. Certain information and footnote
      disclosures included in financial statements prepared in accordance with
      accounting principles generally accepted in the United States of America have
      been omitted in these interim statements pursuant to such SEC rules and
      regulations. The interim unaudited financial statements should be read in
      conjunction with the audited financial statements and related notes included
      in
      the Company’s 2006 Annual Report on Form 10-KSB filed with the SEC. Interim
      results are not necessarily indicative of the results to be expected for the
      full year.





In
      the
      opinion of management, the interim unaudited financial statements include all
      normal recurring adjustments necessary to present fairly the financial position
      and results of operations for each interim period shown in conformity with
      accounting principles generally accepted in the United States of
      America.


**2.
      Recent Accounting Standards and Pronouncements**





In
      2006,
      the FASB issued Interpretation No. 48 (FIN 48), “ *Accounting
      for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109
      Accounting for Income Taxes* .”
FIN
      48
      clarifies the accounting for uncertainty in income taxes recognized in an
      enterprise’s financial statements in accordance with SFAS 109. FIN 48 also
      prescribes a recognition threshold and measurement attribute for the financial
      statement recognition and measurement of a tax position taken or expected to
      be
      taken in a tax return. FIN 48 provides guidance on de-recognition,
      classification, interest and penalties, accounting in interim periods,
      disclosure and transition. The Company adopted FIN 48 as of January 1, 2007,
      as
      required.





The
      current Company policy classifies any interest recognized on an underpayment
      of
      income taxes as interest expense and classifies any statutory penalties
      recognized on a tax position taken as selling, general and administrative
      expense. There were no interest or selling, general and administrative expenses
      accrued or recognized related to income taxes for the three months ended March
      31, 2007. The Company has not taken a tax position that would have a material
      effect on the financial statements or the effective tax rate for the three
      months ended March 31, 2007 or during the prior three years applicable under
      FIN
      48. It is determined not to be reasonably possible for the amounts of
      unrecognized tax benefits to significantly increase or decrease within 12 months
      of the adoption of FIN 48. The Company is currently subject to a three year
      statute of limitations by major tax jurisdictions.





**3.
      Acquisition**





On
      August
      18, 2006, the Company acquired all of the outstanding common stock of Questa
      Software Systems, Inc. (“Questa”) pursuant to a Stock Purchase Agreement.
      Questa, located in Midland, Texas, was engaged in the development of accounting
      software for the petroleum production industry. The purchase price was
      approximately $2.24 million, subject to certain post-closing adjustments based
      on Questa’s actual working capital as of the closing date. The $2.24 million
      purchase price consisted of:





|· | cash
              paid to the Sellers in the aggregate amount of
              $1,790,634;
|- | -------------------------------------------------------------------------------------------

|· | convertible
              promissory notes issued to the Sellers in the aggregate amount of
              $280,000;
|- | -------------------------------------------------------------------------------------------------------------------

|· | an
              aggregate of 200,000 shares of common stock of the Company issued to
              the
              Sellers, valued at $0.505 per share in accordance with EITF 99-12,
              “Determination
              of the Measurement Date for the Market Price of Acquirer Securities
              Issued
              in a Purchase Business Combination”; and
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· | transaction
              costs of $67,789.
|- | -------------------------------------------




In
      connection with the execution of the Stock Purchase Agreement, the Company
      entered into a Stock Buyback Agreement with the sellers on August 18, 2006.
      Pursuant to the Stock Buyback Agreement, the Company granted the sellers the
      right and option to sell to the Company all or any portion of the shares on
      the
      first business day five years from the closing date of the acquisition at a
      price of $1.00 per share. As a result, these shares have been classified as
      temporary equity in the accompanying the balance sheets.











**AVATAR
      SYSTEMS, INC.**


**NOTES
      TO FINANCIAL STATEMENTS**


**(Unaudited)**






The
      acquisition was financed with a term loan from a financial institution in the
      amount of $476,500, a promissory note to two stockholders of the Company in
      the
      amount of $823,500, a convertible promissory notes issued to the seller’s in the
      amount of $280,000 and the issuance of 200,000 shares of common stock of the
      Company to the sellers.





The
      acquisition of Questa provides for economies of scale to be achieved by
      eliminating redundant expense items including major development costs,
      solidifies our recurring maintenance revenue stream, and increases the
      professional capacity of our human resources.





Operating
      results of Questa have been included in the Company’s financial statements since
      August 1, 2006, when the Company assumed the risk of loss for Questa’s
      operations, by recording the transaction from that date directly in the accounts
      of the Company.





The
      following table summarizes the initial fair values of the assets acquired and
      liabilities assumed at the date of acquisition based on a preliminary valuation.
      Subsequent adjustments may be recorded upon the completion of the valuation
      and
      the final determination of the purchase price allocation.




Current
                  assets
              
              $
              138,116Computers
                  and software
              
              
              27,370Furniture
                  and fixtures
              
              
              14,379Purchased
                  software
              
              
              2,141,702Current
                  liabilities
              
              
              (82,144
              )$
              2,239,423


The
      following unaudited pro forma information presents the 2007 and 2006 results
      of
      operations of the Company as if the acquisition had occurred on January 1,
      2006.
      The unaudited pro forma results are not necessarily indicative of results that
      would have occurred had the acquisition been in effect for the periods
      presented, nor are they necessarily indicative of future results.


Three
                  months endedMarch
                  31,2007
              
              2006(unaudited)
              
              (unaudited)Total
                  revenue
              
              $
              966,248
              
              $
              1,001,843Net
                  income (loss)
              
              $
              (5,914
              )
              $
              182,530Net
                  income (loss) per share:Basic
                  and diluted
              
              $
              -
              
              $
              0.02Weighted
                  average common shares outstanding:Basic
              
              
              9,038,152
              
              
              9,038,152Diluted
              
              
              9,038,152
              
              
              9,038,152


**4.
      Long-term Debt**





**Long-term
      Debt to Financial Institution**





On
      August
      16, 2006, the Company entered into a Bank Loan Agreement (Loan Agreement) with
      a
      financial institution to provide a promissory note term credit facility (Term
      Loan) for $476,500.





The
      Term
      Loan is payable in 53 monthly principal payments of $7,942 beginning on March
      5,
      2007 and a final payment of the outstanding principal balance on August 5,
      2011.
      Interest on the outstanding principal balance of the note is payable monthly
      beginning September 5, 2006, with a final payment on the term maturity date.
      The
      note bears interest at the greater of the prime rate plus three quarters of
      one
      percent (0.75%), or nine percent (9.0%).








**AVATAR
        SYSTEMS, INC.**
 **NOTES
        TO FINANCIAL STATEMENTS**
 **(Unaudited)**


The
      Term
      Loan is collateralized by substantially all of the Company’s assets. The Term
      Loan may be prepaid or terminated at the Company's option at anytime without
      penalty. The Loan Agreement contains certain financial covenants and customary
      default provisions (with grace periods where customary), including, among other
      things, failure to pay any principal or interest when due; any materially false
      or misleading representation, warranty, or financial statement; failure to
      comply with or to perform any provision of the agreement; and default on any
      debt in excess of $500,000.





In
      connection with the Loan Agreement, Robert C. Shreve, Jr., the Company’s
      Chairman, President, Chief Executive Officer and Chief Financial Officer,
      provided a guaranty in favor of the financial institution, pursuant to which
      Mr.
      Shreve guaranteed up to $676,500 of the Company’s obligations under the Term
      Loan and the Revolving Loan.





As
      consideration for providing this guaranty, the Company issued common stock
      options to purchase 451,000 shares of common stock of the Company to Mr. Shreve
      at an exercise price of $0.505 per share. The options were fully vested on
      the
      date of issuance. The value of the options, using the Black-Scholes option
      pricing model was determined to be $171,018 and was recorded as debt issuance
      costs included in other assets in the accompanying balance sheets, and will
      be
      amortized as interest expense over the life of the loan.





As
      of
      March 31, 2007, the Company was not in compliance with the Current Ratio and
      Minimum Free Cash Flow to Certain Fixed Costs covenants. The Company has
      received a waiver of these requirements for the quarter ended March 31, 2007.
      The Company expects to be in compliance with the financial covenants as
      additional profits are realized in the future as a result of the
      acquisition.





**Note
      Payable-Stockholders**





On
      August
      16, 2006, the Company entered into a loan agreement (Stockholders’ Loan
      Agreement) and promissory note with two stockholders to provide a promissory
      note for $823,500. The stockholders own approximately 27.1% and 26.6%,
      respectively, of the outstanding common stock of the Company.





The
      promissory note is payable in 53 monthly principal payments of $13,725 beginning
      on March 5, 2007 and a final payment of the outstanding principal balance on
      the
      August 5, 2011. Interest on the outstanding principal balance of the note is
      payable monthly beginning September 5, 2006, with a final payment on the term
      maturity date. The note bears interest at the greater of the prime rate plus
      three quarters of one percent (0.75%), or nine percent (9.0%).





The
      promissory note is collateralized by substantially all of the Company’s assets
      and is subordinated to the Term Loan from the financial institution. The
      stockholder note payable may be prepaid or terminated at the Company's option
      at
      anytime without penalty. The loan agreement contains certain financial covenants
      and customary default provisions (with grace periods where customary),
      including, among other things, failure to pay any principal or interest when
      due; any materially false or misleading representation, warranty, or financial
      statement; failure to comply with or to perform any provision of the agreement;
      and default on any debt in excess of $500,000.





As
      consideration for providing the loan agreement and the promissory note, the
      Company issued common stock options to purchase 274,500 shares of common stock
      of the Company to the each of the stockholders at an exercise price of $0.505
      per share. The options were fully vested on the date of issuance . The
      value
      of the options, using the Black-Scholes option pricing model was determined
      to
      be $208,179 and was recorded as a discount to the related debt and will be
      amortized as interest expense over the life of the loan. For the year ended
      March 31, 2007, $17,768 was recorded as interest expense in the Company’s
      statement of operations.





As
      of
      March 31, 2007, the Company was not in compliance with the Current Ratio and
      Minimum Free Cash Flow to Certain Fixed Costs covenants. The Company has
      received a waiver of these requirements for the quarter ended March 31, 2007.
      The Company expects to be in compliance with the financial covenants as
      additional profits are realized in the future as a result of the
      acquisition.







**AVATAR
        SYSTEMS, INC.**
 **NOTES
        TO FINANCIAL STATEMENTS**
 **(Unaudited)**


**Convertible
      Notes Payable-Stockholders**





On
      August
      18, 2006, as partial consideration for the acquisition, the Company issued
      convertible promissory notes to the sellers of Questa (the “Seller Promissory
      Notes”) in the amounts of $120,000 and $160,000. Accrued and unpaid interest on
      the Seller Promissory Notes is payable for a period of five years following
      the
      date of the note in twenty quarterly installments commencing on March 31, 2007
      and continuing on the last day of each third calendar month. Thereafter,
      principal and accrued interest on the notes is payable in twelve equal quarterly
      installments commencing on the fifth anniversary of the notes, and continuing
      thereafter on the last day of each third calendar month, with the final
      installment of the unpaid principal balance and all accrued and unpaid interest
      due eight years from the date of the notes.





The
      outstanding principal balances of the Seller Promissory Notes are convertible,
      at the option of the holders, in whole or in part and at any time or from time
      to time, into shares of common stock of the Company at a conversion price of
      $3.50 per share, as adjusted from time to time for stock splits, combinations,
      stock dividends and other similar events.





The
      Seller Promissory Notes are unsecured and may be prepaid at the Company's option
      at anytime without penalty, provided that, after the Company notifies the
      holders that the outstanding principal balance will be repaid and the date
      of
      such prepayment fifteen days in advance. The holders have the option during
      the
      fifteen days to convert all or any portion of the outstanding principal balance
      of the Seller Promissory Notes in accordance with the conversion features of
      the
      notes.





**5.
      Temporary Equity**





On
      August
      18, 2006, the Company issued 200,000 shares of its common stock to the sellers
      of Questa, in connection with the execution of a Stock Purchase Agreement to
      acquire Questa. The Company entered into a Stock Buyback Agreement with the
      sellers on August 18, 2006. Pursuant to the Stock Buyback Agreement, the Company
      granted the sellers the right and option to sell to the Company all or any
      portion of the shares on the first business day five years from the closing
      date
      of the acquisition at a price of $1.00 per share. The shares were valued at
      $0.505 per share in accordance with EITF 99-12, and because of the potential
      obligation to repurchase the shares on August 18, 2011, the shares were recorded
      as temporary equity in accordance with EITF Topic No. 98, *Classification
      and Measurement of Redeemable Securities.*





**6.
      Stock Option Plans**





As
      of
      March 31, 2007, there were 1,271,477 options outstanding and 1,228,523 available
      for grant. Of this amount, 1,228,523 options were available for grant to
      employees, non-Director consultants, advisors, and the Company’s
      Directors.





For
      the
      three months ended March 31, 2007 and 2006, the total share-based expense was
      recorded to the following line items of the Company’s statement of
      operations.





Three
                  months endedMarch
                  31,2007
              
              
              2006Operating
                  expenses:General
                  and administrative (employee related options)
              
              $
              3,764
              
              $
              -Other
                  income (expense):Interest
                  expense
              
              
              32,364
              
              
              -Share-based
                  expense before taxes
              
              
              36,128
              
              
              -Related
                  income tax benefits
              
              
              (12,284
              )
              
              -Share-based
                  expense, net of taxes
              
              $
              23,844
              
              $
              -





There
      were no stock options exercised for the three months ended March 31, 2007,
      or
      the comparable period in 2006; therefore, no excess tax benefits were
      recorded.








**AVATAR
        SYSTEMS, INC.**
 **NOTES
        TO FINANCIAL STATEMENTS**
 **(Unaudited)**


As
      of
      March 31, 2007, there was $34,066 of total unrecognized stock based compensation
      related to non-vested share-based compensation awards granted under the stock
      option plans. This cost is expected to be recognized over a weighted average
      period of 2.39 years.





**Stock
      Option Activity**





The
      following is a summary of all stock option transactions for the three months
      ended March 31, 2007:





Weighted
              
              
              WeightedAverage
              
              
              AverageExercise
              
              
              Remaining
              
              
              AggregatePrice
              
              
              Contractual
              
              
              IntrinsicOptions
                  outstanding at December 31, 2006
              
              
              1,276,477
              
              $
              0.528Options
                  granted
              
              
              -
              
              
              -Options
                  exercised
              
              
              -
              
              
              -Options
                  forfeited
              
              
              (5,000
              )
              $
              0.505Options
                  outstanding at March 31, 2007
              
              
              1,271,477
              
              $
              0.528
              
              
              6.84
              
              $
              395,000Options
                  exercisable at March 31, 2007
              
              
              1,039,477
              
              $
              0.533
              
              
              6.28
              
              $
              395,000





At
      March
      31, 2007, the Company had 1,000,000 stock options outstanding in which the
      exercise price was lower than the market value of the Company’s common stock.
      The intrinsic value for these options was $395,000.





**Item
      2.** **Management’s
      Discussion and Analysis or Plan of Operation**





**SPECIAL
      NOTE REGARDING FORWARD-LOOKING STATEMENTS**





You
      should read the following discussion in conjunction with our financial
      statements and related notes. Except for historical information, the following
      discussion contains forward-looking statements within the meaning of Section
      27a
      of the Securities Act of 1933 and Section 21e of the Securities Exchange Act
      of
      1934. These forward-looking statements involve risks and uncertainties,
      including, among other things, statements about our gross margins and operating
      costs and expenses. Our actual results may differ significantly from those
      projected in the forward-looking statements. Factors that might cause future
      results to differ materially from those discussed in the forward-looking
      statements include, but are not limited to, those discussed elsewhere in this
      document, “Risk Factors and Other Trends and Uncertainties Affecting Future
      Operations” set forth in our 2006 Annual Report on Form 10-KSB and other
      documents we file from time to time with the SEC.





Results
      of Operations





*Revenue:*


Three
                    months endedMarch
                    31,
                
                Change2007
                
                2006
                
                Amount
                
                %Software
                
                $
                143,751
                
                $
                76,700
                
                $
                67,051
                
                
                87.4Maintenance
                
                
                626,294
                
                
                333,388
                
                
                292,906
                
                
                87.9Professional
                    services
                
                
                176,891
                
                
                62,231
                
                
                114,660
                
                
                184.2Hardware
                
                
                19,312
                
                
                23,270
                
                
                (3,958
                )
                
                (17.0
                )Total
                    revenue
                
                $
                966,248
                
                $
                495,589
                
                $
                470,659
                
                
                95.0


**AVATAR
          SYSTEMS, INC.**
 **NOTES
          TO FINANCIAL STATEMENTS**
 **(Unaudited)**


Our
      revenue includes four components: software licensing fees, maintenance,
      professional services, and hardware. Revenue for the quarter ended March 31,
      2007 increased 95.0% to $966,248 compared with revenue of $495,589 for the
      quarter ended March 31, 2006. Overall revenue was primarily affected by the
      acquisition of Questa, which added $419,846 to total revenue for the quarter
      ended March 31, 2007.




*Software:*





|· | Revenue
              from software sales for the quarter ended March 31, 2007 was $143,751
              compared with $76,700 from the quarter ended March 31,
              2006.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· | Software
              sales of Questa products were $120,282 for the quarter ended March
              31,
              2007. Sales of the Integra product were impacted primarily by customer
              upgrades to Integra.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· | Software
              sales of Avatar products for the quarter ended decreased 69.4% to $23,469
              compared with $76,700 for the quarter ended March 31,
              2006.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· | Sales
              of Avatar products were unusually strong during the first quarter of
              2006.
              Software sales for the quarter ended March 31, 2007 were negatively
              impacted by transactions that were completed shortly after March 31,
              2007.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




*Maintenance:*





|· | Maintenance
              revenue for the quarter ended March 31, 2007 increased 87.9% to $626,294
              compared with 333,388 in 2006.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------

|· | The
              increase in maintenance revenue related to the Questa acquisition was
              $211,908 for the quarter ended March 31,
              2007.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· | Maintenance
              revenue for existing products increased 24.3% to $414,386 compared
              with
              $333,388 in 2006.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------

|· | The
              increase in maintenance revenue was primarily related to the strength
              of
              ASP sales in 2006.
|- | -----------------------------------------------------------------------------------------------------------------------------------------




*Professional
      services:*





|· | Professional
              service revenue for the quarter ended March 31, 2007 increased 184.2%
              to
              $176,891 compared with $62,231 for the quarter ended March 31,
              2006.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· | The
              increase in professional services revenue related to the Questa
              acquisition was $87,656. Questa historically received a higher percentage
              of revenue from implementation and data conversion services than
              Avatar.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· | Professional
              services related to the Questa acquisition were higher because of stronger
              sales of the Integra system and an increase in the professional services
              billing rate.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· | Professional
              services related to existing products increased 43.4% to $89,235 for
              the
              quarter ended March 31, 2007 compared with $62,231 in 2006. The increase
              in professional services related to existing products was primarily
              from
              professional training.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




*Hardware:*





|· | Hardware
              sales for the quarter ended March 31, 2007 decreased to $19,312 compared
              with $23,270 in 2006.
|- | -----------------------------------------------------------------------------------------------------------------------------------

|· | Questa
              was not a reseller of hardware products. We expect hardware sales to
              increase in the future because of the acquisition, anticipated technology
              changes and relationships that we have with hardware
              vendors.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------







**VATAR
        SYSTEMS, INC.**
 **NOTES
        TO FINANCIAL STATEMENTS**
 **(Unaudited)**


*Cost
      of Revenue:*





Three
                  months ended,
              
              March
                  31
              Change2007
              
              
              2006
              
              
              Amount
              
              
              %Software
              
              $
              60,050
              
              $
              38,504
              
              $
              21,546
              
              
              56.0Maintenance
              
              
              117,599
              
              
              59,665
              
              
              57,934
              
              
              97.1Professional
                  services
              
              
              55,926
              
              
              18,668
              
              
              37,258
              
              
              199.6Hardware
              
              
              16,928
              
              
              13,973
              
              
              2,955
              
              
              21.1Total
                  cost of revenue
              
              $
              250,503
              
              $
              130,810
              
              $
              119,693
              
              
              91.5





Cost
      of
      revenue includes four components: cost of software, cost of maintenance revenue,
      cost of professional services, and cost of hardware sales. Cost of revenue
      for
      the quarter ended March 31, 2007 increased 91.5% to $250,503 compared with
      $130,810 in 2006. Cost of revenue as a percentage of total revenue decreased
      slightly to 25.9% for the quarter ended March 31, 2007 from 26.4% in 2006.
      Overall cost of revenue was primarily affected by the acquisition of Questa,
      which added $90,746 to total cost of revenue for the quarter ended March 31,
      2007.





*Software:*





|· | Cost
              of software sales for the quarter ended March 31, 2007 increased 56.0%
              to
              $60,050 compared with $38,504 for the quarter ended March 31,
              2006.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· | Cost
              of software sales of Questa products for the quarter ended March 31,
              2007
              were $31,698.
|- | --------------------------------------------------------------------------------------------------------------------------------------

|· | Cost
              of software sales for existing products decreased 26.4% to $28,352
              from
              $38,504 in 2006 primarily due to lower commission costs because of
              the
              lower sales volume.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· | Cost
              of software as a percentage of the related revenue decreased to 41.8%
              for
              the quarter ended March 31, 2007 from 50.2% in 2006. We had higher
              sales
              of our internally developed products with higher margins during the
              quarter ended March 31, 2007. Margins were less during the quarter
              ended
              March 31, 2006 because we sold products that we purchase from outside
              vendors with higher costs than our internally developed
              products.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· | We
              expect cost of software sales to increase in the future because of
              an
              increase in the cost of database
              components.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------




*Maintenance:*





|· | Cost
              of maintenance revenue for the quarter ended March 31, 2007 increased
              97.1% to $117,599 compared with $59,665 in
              2006.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· | The
              increase in cost of maintenance revenue related to the Questa acquisition
              was $33,513 for the quarter ended March 31,
              2007.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· | Cost
              of maintenance revenue for existing products increased 40.9% to $84,086.
              The increase in cost of maintenance revenue was directly related to
              the
              increase in maintenance revenue from strong ASP sales completed during
              2006.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· | Cost
              of maintenance as a percentage of the related revenue remained stable
              at
              18.8% for the quarter ended March 31, 2007 compared with 17.9% in 2006.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




*Professional
      services:*





|· | Cost
              of professional services for the quarter ended March 31, 2007 increased
              199.6% to $55,926 compared with $18,668 in
              2006.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· | The
              increase in cost of professional services related to the Questa
              acquisition was $25,535 for the quarter ended March 31,
              2007.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· | Cost
              of professional services for existing products increased 62.8% to $30,391
              compared with $18,668 in 2006. The increase in cost of professional
              services was directly related to the increase in professional services
              revenue.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· | Cost
              of professional services as a percentage of the related revenue remained
              increased slightly to 31.6% for the quarter ended March 31, 2007 compared
              with 30.0% in 2006.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




*Hardware:*





|· | Cost
              of hardware sales for the quarter ended March 31, 2007 increased to
              $16,928 compared with $13,973 in 2006.
|- | -------------------------------------------------------------------------------------------------------------------------------------------






**VATAR
        SYSTEMS, INC.**
 **NOTES
        TO FINANCIAL STATEMENTS**
 **(Unaudited)**


*Operating
      Expenses:*





Three
                  months endedMarch
                  31,
              
              Change2007
              
              
              2006
              
              
              Amount
              
              
              %Sales
                  and marketing
              
              $
              105,910
              
              $
              75,689
              
              $
              30,221
              
              
              39.9General
                  and administrative
              
              
              310,539
              
              
              139,086
              
              
              171,453
              
              
              123.3Amortization
              
              
              189,748
              
              
              98,161
              
              
              91,587
              
              
              93.3Depreciation
              
              
              51,107
              
              
              50,524
              
              
              583
              
              
              1.2Total
                  operating expenses
              
              $
              657,304
              
              $
              363,460
              
              $
              293,844
              
              
              80.8





*Sales
      and Marketing:*





|· | Sales
              and marketing expenses for the quarter ended March 31, 2007 increased
              39.9% to $105,910 compared with $75,689 in
              2006.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· | Sales
              and marketing expenses related to the Questa acquisition were $16,137
              for
              the quarter ended March 31, 2007.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------

|· | Sales
              and marketing expenses related to our existing business increased to
              $89,773 for the quarter ended March 31, 2007 compared with $75,689
              in
              2006. The increase in sales and marketing expenses was related primarily
              to the addition of a director of
              marketing.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· | Sales
              and marketing expenses as a percentage of total revenues decreased
              to
              11.0% for 2007 compared with 15.3% for 2006 primarily due to the higher
              revenue base.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




*General
      and administrative:*





|· | General
              and administrative expenses for the quarter ended March 31, 2007 increased
              123.3% to $310,539 compared with $139,086 in 2006.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

|· | General
              and administrative expenses related to the Questa acquisition for the
              quarter ended March 31, 2007 were
              $55,661.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· | General
              and administrative expenses for our existing business increased 83.3%
              to
              $254,878 from $139,086 in 2006. General and administrative costs increased
              primarily due to charge-offs from bad debts, insurance costs, accounting
              and auditing costs incurred related to the Questa acquisition, and
              an
              increase in investor relations expenses.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· | General
              and administrative expenses as a percentage of total revenue increased
              to
              32.1% for the quarter ended March 31, 2007, compared with 28.1% in
              2006.
              The increase in general and administrative expense as a percentage
              of
              total revenue arising from the Questa acquisition and our existing
              business described above was offset by higher report
              revenues.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

*Amortization:*





|· | Amortization
              expense increased 93.3% to $189,748 for the quarter ended March 31,
              2007
              from $98,161 in 2006.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------

|· | The
              increase in amortization expense related to the acquisition of Questa
              was
              $78,318.
|- | --------------------------------------------------------------------------------------------------------------------------------

|· | Amortization
              expense as a percentage of total revenue remained stable at 19.6% for
              the
              quarter ended March 31, 2007 compared with 19.2% in
              2006.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------








**AVATAR
        SYSTEMS, INC.**
 **NOTES
        TO FINANCIAL STATEMENTS**
 **(Unaudited)**


*Depreciation:*





|· | Depreciation
              expense increased 1.2% to $51,107 for the quarter ended March 31, 2007
              from $50,524 in 2006.
|- | -------------------------------------------------------------------------------------------------------------------------------------

|· | Depreciation
              expense related to the acquisition of Questa was
              $2,999.
|- | -------------------------------------------------------------------------------------------------

|· | Depreciation
              expense as a percentage of total revenue decreased to 5.3% for the
              quarter
              ended March 31, 2007 compared with 10.2% in 2006. The decrease is
              attributable to higher reported revenue.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




*Other
      Income (Expense):*




Three
                  months endedMarch
                  31,
              
              Change2007
              
              
              2006
              
              
              Amount
              
              
              %Investment
                  income
              
              $
              4,232
              
              $
              5,615
              
              $
              (1,383
              )
              
              (24.6
              )Loss
                  on sales of marketable securities
              
              
              (15
              )
              
              -
              
              
              (15
              )
              
              -Interest
                  expense
              
              
              (71,618
              )
              
              (2,424
              )
              
              (69,194
              )
              
              2,854.5Total
                  other income (expense)
              
              $
              (67,401
              )
              $
              3,191
              
              $
              (70,592
              )
              
              (2,212.2
              )





*Investment
      Income:*





|· | Investment
              income decreased to $4,232 for the quarter ended March 31, 2007 from
              $5,616 because of lower invested balances subsequent to the acquisition
              of
              Questa.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




*Interest
      Expense:*





|· | Interest
              expense increased because of the debt incurred by the Company to acquire
              Questa.
|- | ---------------------------------------------------------------------------------------------------------------------




*Provision
      for Income Taxes:*





For
      the
      quarter ended March 31, 2007, we recorded a deferred tax benefit of $3,046
      based
      on the pretax loss of $8,960 using an effective tax rate of 34%, which is our
      anticipated effective tax rate for the fiscal year 2007. The actual effective
      tax rate for the entire fiscal year could vary substantially depending on actual
      results achieved.


**Liquidity
      and Capital Resources**





Cash
      and
      cash equivalents and marketable securities at March 31, 2007 were $653,919
      compared with $657,915 at March 31, 2006. Cash and cash equivalents and
      marketable securities at December 31, 2006 were $717,162. Cash flows for the
      third quarter of 2006 were impacted positively by cash we collect from recurring
      maintenance agreements, software, and hardware sales. These cash flows were
      offset by additions to software development costs, purchases of computer
      equipment, and principal payments on capital lease obligations, long-term debt,
      and long-term debt-stockholders.




*Cash
      flows from Operating Activities:*




Cash
      flows from operating activities represent the most significant source of funding
      for operations. Operating activities provided cash flows of $276,102 and
      $158,470 for the three months ended March 31, 2007 and 2006,
      respectively.







**AVATAR
        SYSTEMS, INC.**
 **NOTES
        TO FINANCIAL STATEMENTS**
 **(Unaudited)**


The
      major
      use of our operating cash is to fund obligations that flow through our accounts
      payable and accrued liabilities, such as funding of payroll and related
      benefits, rent, facilities costs, insurance, professional fees and other costs
      incurred in our normal operations.





We
      expect
      cash provided by operating activities to remain relatively stable in future
      periods due primarily to the stability of our recurring maintenance revenues,
      but it will be impacted by fluctuations in software and hardware sales and
      debt
      service requirements.





*Cash
      Flows from Investing Activities:*





Net
      cash
      used in investing activities for the three month period ended March 31, 2007
      of
      $235,015 consisted of capitalized software development costs of $243,037,
      purchases of computer equipment of $15,930. Net cash used in investing
      activities was offset by net sales of $23,952 of marketable
      securities.


Net
      cash
      used in investing activities for the three month period ended March 31, 2006
      of
      $200,769 included $143,699 in capitalized software development costs, purchases
      of computer equipment of $54,759, and net marketable securities purchased of
      $2,311.




*Cash
      Flows from Financing Activities:*




Net
      cash
      used in financing activities for the three month period ended March 31, 2007
      of
      $80,885 was applied to principal payments on capital lease obligations,
      long-term debt, and long-term debt-stockholders.





Net
      cash
      used in financing activities for the three months ended March 31, 2006 of $7,787
      was applied to principal payments on capital lease obligations and notes
      payable.




*Working
      Capital:*




At
      March
      31, 2007, we had a working capital deficit of $117,753 down from a negative
      working capital position of $16,877 at December 31, 2006. The decrease in
      working capital is attributable primarily to lower cash provided by operating
      activities, cash used in investing activities of $235,015, and cash used in
      financing activities of $80,885. We currently have no significant capital
      commitments other than commitments under our capital lease obligations, notes
      payable and operating leases.





Based
      upon our past performance and current expectations, we believe that our cash
      and
      cash equivalents, marketable securities and cash generated from operations
      will
      be sufficient to satisfy our working capital needs,


capital
      expenditures, investment requirements and financing activities for at least
      the
      next twelve months.











**Item
      3. Controls and Procedures**





The
      Chief
      Executive Officer/Chief Financial Officer of the Company has established and
      is
      currently maintaining disclosure controls and procedures for the Company. The
      disclosure controls and procedures have been designed to ensure that material
      information relating to the Company is made known to him as soon as it is known
      by others within the Company. There have been no significant changes in these
      controls or in other factors that could significantly affect internal controls
      subsequent to the end of the period covered by this report.





As
      of the
      date of this report, the Chief Executive Officer/Chief Financial Officer has
      conducted an update and a review and evaluation of the effectiveness of the
      Company's disclosure controls and procedures. It is the Chief Executive Officer
      /Chief Financial Officer’s opinion that the controls and procedures currently
      being utilized by the Company are sufficiently effective to ensure that any
      material information relating to the Company would become known to him within
      a
      reasonable time.


**PART
      II. OTHER INFORMATION**


**Item
      1.****Legal Proceedings**





None.


**Item
      2.** **** **Unregistered
      Sales of Equity Securities and Use of Proceeds**





None.


**Item
      3. Defaults Upon Senior Securities**


The
      Loan
      Agreement with the financial institution and the Stockholders’ Loan Agreement
      contain certain financial covenants and customary default provisions (with
      grace
      periods where customary), including, among other things, failure to pay any
      principal or interest when due; any materially false or misleading
      representation, warranty, or financial statement; failure to comply with or
      to
      perform any provision of the agreement; and default on any debt in excess of
      $500,000.





As
      of
      March 31, 2007, the Company was not in compliance with the Current Ratio and
      Minimum Free Cash Flow to Certain Fixed Costs covenants. The Company has
      received a waiver of these requirements for the quarter ended March 31, 2007.
      The Company expects to be in compliance with the financial covenants as
      additional profits are realized in the future as a result of the
      acquisition.





**Item
      4. Submission of Matters to a Vote of Security Holders**





None.


**Item
      5.** **Other Information**





None.


**Item
      6. Exhibits**





31.1
                Section 302 Certification pursuant to Sarbanes Oxley
                Act.32.1
                Section 906 Certification pursuant to Sarbanes-Oxley
                Act








**S** **ignatures**




Pursuant
      to the requirements of the Securities Exchange Act of 1934, the registrant
      has
      duly caused this report to be signed on its behalf by the undersigned thereunto
      duly authorized.




AVATAR
                SYSTEMS, INC.**Dated:
                March 18, 2007**
            By:
            /s/ROBERT
                C. SHREVE, JR.________________________Robert
                C. Shreve, Jr.
              Chief
                Executive Officer
              Chief
                Financial Officer